Abstract
Determining cash holdings is amongst the most important financial decisions made by heads of corporations. This decision relies on theoretical convictions and views as well as firm specific characteristics. This article analyzes the determinants of cash management in Moroccan corporations. By mobilizing all the theories of optimal financial structure, our research attempts to focus on the field of knowledge in the financial management of cash surpluses. No analysis has been carried out concerning cash and cash equivalents in Moroccan firms. These results could, therefore, contextualize the existing knowledge in this research theme and better understand the behavior of companies and their main trends in terms of cash flow, as well as the objectives and motivations of managers. The sample studied consists of 42 Moroccan companies, which are all publicly traded on the Casablanca Stock Exchange over 13 years (2007-2019). This research uses an empirical econometric study based on a positivist approach with a hypothetical-deductive method. We use panel regression analysis and perform all the necessary tests to determine the exact nature of this dataset. Our results show some evidence that a strong positive correlation exists between liquidity level and cash-flow as well as family shareholding. It is also found that the cash holdings of these companies are significantly negatively affected by how large or small the firm is, working capital requirement, debt leverage, as well as growth opportunity of the firm.
Highlights
As the tools used to manage cash positions become increasingly sophisticated, one might have expected a move towards this theoretical optimum, which implies a decrease in the average cash holdings
This article examines the reasons for retaining liquidity of non-financial companies listed on the Casablanca Stock Exchange during the period 2007-2019 in the context of three explanatory theories of liquidity holding: trade-off theory, pecking order theory, and agency theory
In line with the prediction of the trade-off theory, our results indicate that small companies facing higher transaction costs, and firms without a large working capital requirement, accumulate significantly higher cash reserves
Summary
Since the start of this millennium, liquidity has been more than ever at the heart of corporate policies that hold cash for various reasons. The financial literature has tried to understand the determinants as well as the different motivations for which companies prefer to hold this cash. During the same period of time, cash positions of US companies grew even more significantly, reaching a record level in 2017 with more than USD 1.99 trillion held by US non-financial companies (Moody’s 2018). Classical financial theory teaches us that companies should aim for zero cash flow. As the tools used to manage cash positions become increasingly sophisticated, one might have expected a move towards this theoretical optimum, which implies a decrease in the average cash holdings. What are the reasons why companies hold cash?
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